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Tighter inventories give oil markets hope



Oil traders continue to look beyond the escalating US-China trade war and offer oil prices while looking at sharpened inventories.

Crude prices have been raised this week on the basis of dubious hopes that the US and China could cut down the trade war, but also because of some more well-known movements in plumbing data. The agency showed a massive reduction in crude oil stocks of 10 million barrels last week, significantly more than the market had expected. Contrary to previous reports that tended to offer mixed signals, this also showed a fall of 2.1 million barrels in gasoline stocks, and a similar size in distillation fuel stocks. To put it all out, it was a decidedly bullish report.

It eased the concerns, at least temporarily, that the slow world economy would leave the market suffering from a surplus.

"The oil markets are largely balanced at the moment, and benefit from the typical seasonal acceleration in demand," said Martijn Rats, global oil strategist at Morgan Stanley.

The EIA data provided some evidence to the prevailing forecasts of major market owners that supply / demand picture is set to tighten in the second half of the year. For example, the International Energy Agency (IEA) currently sees oil demand increase by 1

.1 million barrels per day (mb / d) in 2019. But during the first five months of the year, demand increased only by 520,000 barrels per day in the same period period a year earlier.

In order for the full-year forecast to be carried out, demand must accelerate dramatically in the second half of 2019. The IEA projects year-on-year growth in the order of 1.2 mb / d in the third quarter and 1.9 mb / d in the fourth. The figure in the fourth quarter looks bigger than it might otherwise be because demand dipped in the fourth quarter of 2018, so that the forecast from year to year looks abnormally large. Still, the point is that the agency is banking on a strong global economy and strong demand to tighten the oil market balance in the final months of 2019. Related: Trump Feeds Oil Markets False Hope [19659002] The Agency acknowledged the shaky basis for this forecast, not least because the US-China trade war could send the global economy into a recession. "The outlook is fragile with a higher likelihood of a downward revision than an upward revision," the IEA said in its August oil market report. "In the meantime, the short-term market balance has been tightened somewhat by the reduction in supply from OPEC countries."

The IEA said that cuts from OPEC +, led by sharp reductions from Saudi Arabia, will lead to inventories in the second half of 2019. "In a clear indication that it was determined to support market balance adjustment, Saudi Arabia was production 0.7 mb / d lower than the level allowed in the production agreement, "the IEA said earlier this month. "If the July level of OPEC crude oil production of 29.7 mb / d is maintained through 2019, the implied shareholding in 2H19 is 0.7 mb / d, also helped by a lower rate of non-OPEC production growth."

For now, the OPEC + countries are doing their part. Even Russia has signaled its ongoing support. "Russian Energy Minister Novak has reaffirmed Russia's commitment to OPEC's voluntary production decline. Good production discipline in OPEC +, combined with good demand, is likely to support oil prices," Commerzbank said in a note on Wednesday.

WTI has returned to the mid $ 50 and Brent has climbed back over $ 60 per barrel for the time being. But unless the global economy resumes stronger growth, it could all prove to be a temporary affair, something even OPEC and IEA forecasters acknowledge.

Market tightness is a "temporary phenomenon because our outlook for very strong production growth without OPEC next year is unchanged at 2.2 mb / d. According to our current assumptions, by 2020, the oil market will be well supplied," the IEA said in its "Well Delivered" is a very diplomatic way of referring to quite substantial glut that is pouring in for 2020.

By Nick Cunningham of Oilprice.com

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